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    It's Dog Eat Dog for European Food Retailers

    (Financial Times) - Europe's leading food retailers must look at foreign acquisitions if they are to survive, according to a new report.

    (Financial Times) - Europe's leading food retailers must look at foreign acquisitions if they are to survive, according to a new report.

    "Eat or be Eaten," from industry analysts Retail Intelligence, says consolidation in recent years has led to a dramatic recasting of the European grocery sector.

    Carrefour, with sales of E54 billion ($47 billion) is the leading European food retailer, thanks to its 1999 merger with Promodes. The French company is now market leader in Spain, Belgium and Greece, and has strong positions in Eastern Europe and Italy.

    Tesco of the UK ranks second, with sales of E35 billion. The company recently said its international sales had risen 50 percent in the first quarter of this year. To challenge its French rival however, it needs a large strategic merger, according to the report.

    The company has been following a strategy of organic growth and minor acquisitions in Ireland, Hungary and the Czech Republic, together with joint venture operations outside Europe, such as Tesco Lotus in Thailand.

    Analyzing possible suitors for Tesco, Bryan Roberts, European retail analyst at Retail Intelligence, said a link-up with Ahold, the Dutch retailer, could create a "dream team". The companies have a perfect geographic fit, according to Roberts. Ahold is strong in the US and in Latin America, where Tesco is weak. Where there is overlap, such as in central and Eastern Europe, the companies could easily dovetail their operations.

    Other UK retailers could become targets for international rivals. Wal-Mart has already arrived in the UK with its acquisition of Asda. Carrefour and Ahold, with stores in over 20 countries, have both said they would like to enter the UK market.

    Roberts said Ahold had many cultural similarities with J. Sainsbury. Both are upmarket chains and are quality rather than price-led. Sainsbury is more of a tempting target now it has disposed of Homebase, said Roberts. Safeway also looks vulnerable and with no overseas activity. "It could be swallowed without any undue digestion," he said.

    The four markets of France, UK, Germany and Italy account for almost two thirds of total sales across Europe.

    Markets such as Germany, however, remain fraught with difficulties for foreign companies, thanks to restrictive legislation. Wal-Mart now expects to open just two new stores there this year - many fewer than planned.

    "German operators are more than capable of playing Wal-Mart at the low-price game, said Roberts. "In fact, they invented it."

    The introduction of the Euro is expected to lead to increasing cross-border shopping. Austrian shoppers already cross the border to shop at Hungarian Tesco stores, while many Germans travel to Poland on Sundays as local stores remain closed.

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